What Trading Rule Does Nassim Taleb Say Keeps a Trader Alive?

Nassim Nicholas Taleb told Russ Roberts on EconTalk that surviving traders skip the ornate model. Harry Markowitz's formulas compute detailed odds on future returns, and Taleb said Markowitz did not trade that way. The working rule is what you expect to make, and whether you stay solvent. When Long-Term Capital Management failed in 1998, academics who had moved onto trading desks went bust on small-probability bets. An edge is not enough. If ruin is possible and you keep playing, you hit it, unless you bet close to the Kelly criterion. Start with $100 and risk $1. After a loss, risk less. After a win, raise the bet with the winnings, and cut it when you are losing.